Understandably, as a business owner, you only want to pay for those goods or services you legitimately ordered. As such, you want to avoid paying any fraudulent and inaccurate invoices as far as possible. When you do, you’ll eliminate unnecessary expenses and bolster your bottom line.
For this reason, it's critical that you verify the invoices you receive for goods and services. And this is where the 3-way matching process comes in, as it allows you to verify invoices based on all the documents relating to an order and sort out any discrepancies before you make payment.
In this post, we'll look at the 3-way match process in more detail.
What is the 3-Way Match in the Accounts Payable Process?
3-Way matching in the account payable process is the process of verifying invoices to ensure that you pay only for those products you requested, approved, and received from a seller or vendor. This involves establishing that:
- Your business requested the goods or services that the invoice is for from the seller.
- Your business received the goods or services that the invoice is for from the seller.
By following this payment process and verifying invoices in this manner, you’ll ensure that you only pay invoices for goods and services delivered, and you'll be able to determine if any invoice is legitimate or fraudulent. Apart from this, 3-way matching also has other benefits.
For instance, when you use this process, you'll have a verified record of all the products and services that a supplier has delivered to your business. This not only helps you maintain the relationships with your vendors and suppliers, but can also be helpful if there is a dispute. In addition, you’ll also maintain up-to-date records for audit purposes.
Using the 3-way matching process can also help you manage your business's expenses. As such, you'll eliminate any unnecessary expenditure, which then directly translates into more profit.
How Does 3-Way Matching Work?
Now that we’ve seen what 3-way matching is, let's look at how the process works. The process relies on three components:
- Purchase orders. For every purchase you make, you'll likely issue and approve a purchase order for the specific products or services.
- Packing slips or order receipts. Once the purchase order is approved, and you send it to a supplier, the supplier will accept it and then send you the product or render the services. Generally, when the supplier does this, they’ll provide an order receipt or packing slip to confirm that the products were delivered or the services rendered.
- Invoices. Once the supplier has delivered the product or rendered the services, they will supply a supplier invoice which is, in essence, a request to pay for the goods or services.
In the 3-way matching process, you or your team will confirm that all the details relating to an order corresponds between these three documents. If they do, the invoice will be verified, and you’ll make payment to the seller. If, however, there is a discrepancy between any of these documents, you’ll withhold payment pending a reconciliation to correct the issue.
To illustrate how the process works, let's look at a simple example. Let's assume that you receive an invoice from a supplier for equipment to the value of $8000. The first step is checking the purchase order for the equipment. Here, you'll look at if the description, quantity, and price of the equipment match those indicated on the invoice. When they do, you’ll confirm that you did, in fact, order the equipment.
Once you've checked that the invoice matches the purchase order, the next step is to check the order receipt or packing slip. Once again, you'll verify that the quantity, description, and price of the goods delivered match the invoice. If it does, it shows that you did, in fact, receive the equipment the invoice is for.
When all the details relating to the order on the purchase order, the invoice, and the order receipt match, it indicates a successful three-way match. This means that you can pay the invoice knowing that it is legitimate. If the details don't match, however, you'll put a hold on the invoice and rectify the issue before you make payment to the seller.
Making Your 3-Way Matching Process More Efficient
Understandably, manually performing the 3-way matching process can be time and resource-intensive. In addition, by using manual matching, you’ll reduce the overall visibility of the process and pave the way for human errors. Fortunately, automating your three-way matching process can make the process far more efficient and eliminate any necessary errors. As a result, you only pay those invoices issues for products or services you ordered and received.